Your shares queries answered

Morven Whyte answers your shares queries

Kenneth Marshall asks: I hold RBS shares but cannot afford to take the rights up. What are my options? Can I sell them nil paid? What happens if I don't do anything?

The easiest option would be to do nothing and let the offer lapse. If lapsed proceeds are paid these will be sent out to you in due course. The amount will depend on the value of the nil paid shares at the closing date. The alternative is to sell the nil paid shares on the makret through a stockbroker. Commission charges will apply but there will be a certainty as to the price which you will get at the time of selling.

Finally, the most complicated option would be to sell part of the nil paid shares and use the proceeds to take up the rights on the remainder. Given the costs involved, this is probably only worthwhile for investors with large holdings in Royal Bank of Scotland who are reluctant to have their existing holding diluted as a result of this issue.

Kiran: I would like to know if it is worth buying the shares that RBS are selling through the rights issue? Or is it better to sell the rights and make money, instead of me giving out thousands of pounds buying more shares? If they are worth buying, why? Are they good value?

Unfortunately, only time will tell whether Royal Bank of Scotland's offer of additional shares at �2 per share was a good or bad investment. Much will depend on whether investors have spare money which they are prepared to commit in the longer term. Most analysts take the view that the shares will be rather lacklustre over the next couple of years. We know that Royal Bank of Scotland, with hindsight, overpaid for its acquisition of Dutch bank ABN Amro last year, it has also over-committed itself in the sub prime mortgage market in the US.

Worse news could also hit the banking sector by way of further deteriorating conditions in the economy, both in the UK and other regions, but longer term, our general advice is to take the issue up because RBS will become better capitalised as a result of this issue and is in a position to come out stronger longer term. It is also worth pointing out that despite the company paying its interim dividend as shares rather than cash, they do offer highly attractive future income of around 8%, which would suggest that the shares have been rather oversold.

Harry: I currently have shares in HBOS and Bradford & Bingley. Both propose to have a share issue. As a general rule, if I can afford to purchase extra shares would it be a worthwhile investment?

Again, much depends on your financial situation and the level of risk that you are prepared to accept. Both banks are struggling with the current economic environment, being highly exposed to the mortgage market, and Bradford and Bingley the buy to let sector. Bradford & Bingley are the riskier proposition with the latest research supporting the take up of HBOS in favour of B & B.

Paul: I originally bought British Gas shares when they first floated. These have changed names a few times during the years. I have recently sold my BG shares but have 200 'B' shares issued in 1997. Can you please advise if these are listed anywhere and if I can sell these as a normal share?

The 'B' shares which were issued in November 1997 were converted into ordinary shares in December 1998 on the basis of one ordinary share for every 12.995 'B' shares owned. To double check your shareholding, contact the registrars on 08713847030.

Howard: During July 1998 I bought at 15p a share 10,000 shares in Northumbrian Fine Foods (later NFF Plc). One of their subsidiary companies, Cakes for the Connoisseur, is situated in Huddersfield, less than one mile away from my home. Having not heard from the company for a while I enquired how they were doing, only to be told that NFF Plc no longer exists. As a shareholder should I have been informed, or should I have kept a closer eye on them? Perhaps it's not a good idea to stick shares in a cupboard and expect them to look after themselves. I would love to know what happened to the company as a "warning from history".

Yes the Inland Revenue declared NFF of negligible value in August 2001. Interestingly its subsidiary company Cakes for the Connoisseur was bought from bankrupt NFF for �2.7m, by Interlink Foods Group. Despite an encouraging run Interlink Foods overstretched themselves and they themselves also went into administration. The lesson clearly is that shares need to be monitored and managed properly to get the best returns.

Anon: Gains made from share sales are normally liable to capital gains tax. If your only source of income is from the trade and sale of shares, is the profit taxed as income tax rather than capital gains tax?

This is a very good question, which affects so-called "day traders" who may have given up their day job to trade in stocks and shares as their only source of income. In other words, if share dealing is your trade then any profit which you make is classed as an income and would be subject to tax at 20% and 40%, dependent on the level of profit which you make. If, however, you can agree with the Revenue that share dealing is not your trade, then you would be subject to the capital gains tax rules and pay tax at 18% over and above the personal allowance.

Sue: I have just received a large document from Shell referring to a Settlement Agreement but it doesn�t define what this is - can you help? What is this and what does it mean as a shareholder?

If you purchased shares in Shell during the period 8th April 1999 through to 18th March 2004, and resided or were domiciled outside of the United States, you could be eligible for a small compensation payment, due to the announcement in January 2004 regarding Shell�s overstating their oil and gas reserves. Shell has agreed to compensate shareholders - subject to a Court of Appeal Ruling in November this year.

The documentation sent gives shareholders the opportunity to address the court and, as such, play a part in the compensation process. Generally, our advice is to do nothing and if the court declares the settlement agreement binding, they will be written to again with the opportunity to submit a claim. More details can be found on the Royal Dutch Shell Settlement website at www.royaldutchshellsettlement.com but before investors get too excited it is widely expected that the payment will be negligible for small shareholders.

David: Can you mention PIBS in your forthcoming programme on shares, especially the pros and cons. They seem to have very good interest rates but is there a catch?

The acronym PIBS stands for Permanent Interest Bearing Shares and are effectively special shares issued by Building Societies that pay a fixed rate of interest. It is important to point out that, unlike Building Society products, their value is not guaranteed and the price fluctuates just like an ordinary share. They cannot be sold back to the Building Society and have to be bought and sold on the Stock Exchange. At present, investors can lock into an income in the region of 7% but, of course, the share price will suffer in an inflationary environment and where there are any question marks regarding the stability of the Building Society, expect falls in the capital value.

The opinions expressed are Morven's, not the programme's. The answers are not intended to be definitive and should be used for guidance only. Always seek professional advice for your own particular situation.

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